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Book Value and Depreciation

Please refer attached file for completer set of problems

Straight Line Depreciation
Some special handing devices are bought at the beginning of 2003 for $ 14,000. They will be used for 6 years at the end of which they can be sold for $ 2,000. The devices will be depreciated using the Straight Line method.
Straight Line
B=14,000
S=2,000
N=6

Year (n) d(n) BV(n)
14,000
2003 12,000
2004
2005 ***
2006 ***
2007 2,000
2008

Note: *** indicates cells you will solve to answer the questions below

Question 1: Depreciation during 2005 is most nearly
$ 1,666
$ 2,000
$ 2,333
$ 2,666

Question 2: Using the given information from question 1, the Book Value at the end of 2006 is most nearly
$ 4,800
$ 5,500
$ 6,000
$ 6,666

MACRS I
Petroleum drilling equipment is bought in July of 2003 for $ 14,000. It will be used for 5 years at the end of which they can be sold for $ 2,000. The equipment will be depreciated using the MACRS method. For the purpose of the tax code, the equipment is considered a five-year property.

MACRS
B=14,000
N= 2,000
S=6

Year, n r(n) d(n) BV(n)
14,000.00
2003
2004
2005 ***
2006 ***
2007 ***
2008 806.40 ***

Note: *** indicates cells you will solve to answer questions on page 2 and question 1 on page 3.

1. Depreciation during 2005 is most nearly
$ 1,648
$ 1,703
$ 2,254
$ 2,688

2. Depreciation during 2007 is most nearly
$ 1,613
$ 1,994
$ 2,137
$ 2,417

3. The Book Value at the end of 2006 is most nearly
$ 1,981
$ 2,195
$ 2,419
$ 2,661

SOYD Depreciation
Some special handing devices are bought at the beginning of 2003 for $ 14,000. They will be used for 6 years at the end of which they can be sold for $ 2,000. The devices will be depreciated using the Sum-of-Years Digits method.

B= 14,000
S= 2,000
N= 6

Year, n d(n) BV(n)
0 14,000
2003
2004 2857.14
2005 ***
2006 *** ***
2007 2571.43
2008

1. The Book Value at the end of 2008 is most nearly
$0
$1,230
$ 1,410
$ 2,000

2. Depreciation during 2005 is most nearly
$ 1,714
$ 2,286
$ 2,833
$ 3,166

3. Depreciation during 2006 is most nearly
$ 1,714
$ 2,286
$ 2,833
$ 3,166

Double Declining Balance
Some special handing devices are bought at the beginning of 2003 for $ 14,000. They will be used for 6 years at the end of which they can be sold for $ 2,000. The devices will be depreciated using the Double Declining Balance method.
B=14,000
N= 6

Year, n d(n) BV(n)
14,000.00
2003
2004 6,222.22
2005 ***
2006 *** ***
2007
2008

1. The Book Value at the end of 2006 is most nearly
$ 2,866
$ 3,500
$ 3,663
$ 3,714

2. Depreciation during 2005 is most nearly
$ 1,704
$ 1,793
$ 2,074
$ 2,877

3. Depreciation during 2006 is most nearly
$ 1,383
$ 2,194
$ 2,237
$ 2,791

4. The Book Value at the end of 2006 is most nearly
$ 1,885
$ 2,160
$ 2,592
$ 2,765

MACRS II
Equipment for automobile production is bought in July of 2005 for $160,000. It will be used for 7 years. The equipment will be depreciated using the MACRS method. For the purpose of the tax code, the equipment is considered a seven-year property.
MACRS/Seven Year

B= 160,000
S= 0
N= 7

Year, n r(n) d(n) BVn
160,000.00
2005 ***
2006 ***
2007 ***
2008
2009 14,288.00
2010 ***
2011
2012 ***

1. The Book Value at the end of 2008 is most nearly
$0
$ 1,229
$ 1,692
$ 2,000

2. Depreciation during 2005 is most nearly
$ 11,640
$ 21,420
$ 22,860
$ 24,630

3. Depreciation during 2007 is most nearly
$27,980
$ 29,400
$ 31,530
$ 36,390

4. Depreciation during 2012 is most nearly
$ 6,830
$ 7,140
$ 7,850
$ 14,280

5. The Book Value at the end of 2006 is most nearly
$ 87,800
$ 97,950
$ 102,400
$ 106,600

6. The Book Value at the end of 2010 is most nearly
$ 14,750
$ 18,670
$ 21,420
$ 24,990

Problem 11-15
A heavy construction firm has been awarded a contract to build a large concrete dam. It is expected that a total of 8 years will be required to compete the work. The firm will buy $600,000 worth of special equipment for the job. During the preparation of job cost estimate, the following utilization schedule was computed for the special equipment:

Year Utilization (hr/yr) Year Utilization (hr/yr)
1 6000 5 800
2 4000 6 800
3 4000 7 2200
4 1600 8 2200

1. The depreciation for the fourth year by the Sum-of-Years digits method is most nearly:
$60,000
$ 70,000
$ 75,000
$ 77,000

2. The depreciation by the Unit of Production Method (UOP) during the seventh year is most nearly:
$22,000
$44,000
$55,000
$66,000

Problem 11-13
The depreciation schedule for an asset, with a salvage value of $90 at the end of the recovery period, has been computed by several methods. Identify the depreciation method used for each schedule.
Year A B C D E
1 $323.3 $212.0 $424.0 $194.0 $107.0
2 258.0 339.2 254.4 194.0 216.0
3 194.0 203.5 152.6 194.0 324.0
4 129.3 122.1 91.6 194.0 216.0
5 64.7 122.1 47.4 194.0 107.0
6 61.1
970.0 1060.0 970.0 970.0 970.0

Question 1: Depreciation Schedule A was calculated using:
Straight Line Depreciation
Sum of Years Digits Depreciation(SYOD)
Double Declining Balance Depreciation (DDB)
MACRS Depreciation
Unit of Production Depreciation (UOP)

2. Depreciation Schedule B was calculated using:
Straight Line Depreciation
Sum of Years Digits Depreciation(SYOD)
Double Declining Balance Depreciation (DDB)
MACRS Depreciation
Unit of Production Depreciation (UOP)

3. Depreciation Schedule C was calculated using:
Straight Line Depreciation
Sum of Years Digits Depreciation(SYOD)
Double Declining Balance Depreciation (DDB)
MACRS Depreciation
Unit of Production Depreciation (UOP)

4. Depreciation Schedule D was calculated using:
Straight Line Depreciation
Sum of Years Digits Depreciation(SYOD)
Double Declining Balance Depreciation (DDB)
MACRS Depreciation
Unit of Production Depreciation (UOP)

5. Depreciation Schedule E was calculated using:
Straight Line Depreciation
Sum of Years Digits Depreciation(SYOD)
Double Declining Balance Depreciation (DDB)
MACRS Depreciation
Unit of Production Depreciation (UOP)

Problem 11-5

The company treasurer must determine the best depreciation method for office furniture that costs $50,000 and has a zero salvage value at the end of a 10-year depreciable life. Compute the depreciation schedule using:
1) Straight line
2) Double declining balance
3) Sum-of-years'-digit
4) Modified accelerated cost recovery system

1. The straight line depreciation for the fifth year is most nearly:

$ 4,100
$ 4,500
$ 5,000
$ 5,500

2. The Double Declining Balance (DDB) depreciation for the fourth year is most nearly:
$ 5,000
$ 5,100
$ 5,300
$ 6,000

3. The Sum-of-years depreciation for the seventh year is most nearly:
$ 2,600
$ 2,900
$ 3,600
$ 3,900

4. The MACRS depreciation in the sixth year is most nearly: (Points : 1)
$ 3,400
$ 3,700
$ 4,000
$ 4,500

Problem 11-23

The White Swan Talc Company paid $120,000 for mining equipment for a small talc mine. The mining engineer's report indicates the mine contains 40,000 cubic meters of commercial-quality talc. The company plans to mine all the talc in the next 5 years as follows:
Year Talc Production (m^3)
1 15000
2 11000
3 4000
4 6000
5 4000
At the end of 5 years, the mine will be exhausted and the mining equipment will be worth-less. The company accountant must now decide whether to use sum-of-years'-digits depreciation or unit-of-production depreciation. The company considers 8% to be an appropriate time value of money. Compute the depreciation schedule for each method. Which would you recommend?

1. The depreciation in the first year calculated by the SOYD method is most nearly:
$ 32,000
$ 40,000
$ 42,000
$ 48,000

2. The depreciation in the fourth year calculated by the UOP method is most nearly:
$ 12,000
$ 14,000
$ 16,000
$ 18,000

3. Which method would you recommend the company adopt?
SL
UOP
SOYD

Attachments

Solution Preview

Please refer attached file/s for complete details.

1
Depreciation during 2005 is most nearly
Refer attached file for calculations.
Correct option is B i.e. $2000
2.
Using the given information from question 1, the Book Value at the end of 2006 is most nearly
Correct option is C i.e. $6000

MACRS I

1: Depreciation during 2005 is most nearly
Please refer attached file for calculations
Correct option is D i.e. $2688
2. Depreciation during 2007 is most nearly
Please refer attached file for calculations
Correct option is A i.e. $1613
3. The Book Value at the end of 2006 is most nearly
Please refer attached file for calculations
Correct option is C i.e. $2419
4.
The Book Value at the end of 2008 is most nearly
Correct option is D i.e. $2000
Please refer attached file for calculations

SOYD Depreciation
1: Depreciation during 2005 is most nearly
Correct option is B $2286
Please refer attached file for calculations
2.
Depreciation during 2006 is most nearly
Correct option is A $1714
Please ...

Solution Summary

There are several problems related to depreciation and book values. Different methods of calculating depreciation are used in different conditions. Solutions to given problems depict the methodology to estimate the depreciation and book values using straight line method, MACRS method, SOYD and double declining balance method.

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